We host a lot of visitors and we put a high value on being able to do so. However, we also want to live small and cheap. Here is our current solution.
Our offices double as guest space. House is 1144SF, 3 bedrooms, and each of the extra rooms serves as an office (1 for each of us) and a guest room (one with a full bed, the other with a futon). They also double as extra storage and one has some entertaining space (TV, games etc). This enables us to pack more functionality into this house than our previous one, which was much bigger. This is still big and wasteful compared to a lot of MMM'ers, but in our LCOL area, it's hard to get much cheaper or smaller without living in a super shitty neighborhood, and it was an ideal intermediate step that also got us in walking distance of all kinds of things (vs. suburban hell and 5 miles to anything worth doing/buying).
When we move again, we may even reduce space further. In that case, we'd probably have at least one guest room (whether dedicated or mixed-use) as well as using common areas - fold-out couches, air mattresses, or something else.